Day Traders Diary

8/4/16

The stock market trades little changed at midday with the Nasdaq Composite (+0.2%) trading ahead of the S&P 500 (+0.1%), which managed to find support earlier in the day near its 20-day simple moving average (2162.33).

Today's flat performance in the broader market comes on the heels of the Bank of England's decision to lower its key interest rate to a record-low 0.25% from 0.50% and ahead of tomorrow's influential Employment Situation Report for July. Additional focal points for today's trade have included a modest gain in the dollar, a continued rebound in oil futures, and the outperformance of the heavily-weighted industrial (+0.2%) and technology (+0.5%) sectors.

The Bank of England exceeded market expectations this morning when it announced that it is going to lower its Bank Rate and step up its asset purchase program. The BoE voted to increase its U.K. government bond purchases by GBP60 billion and to purchase up to GBP10 billion of U.K. corporate bonds. The accommodative monetary policy decision follows the surprise Brexit vote in late June.

The policy move has spurred weakness in the British pound, dropping the pound/dollar pair 1.5% (1.3126). The U.S. Dollar Index (95.72, +0.16) sports a modest gain following the decision, but the move has been somewhat offset by losses against the yen and the commodity-sensitive Canadian dollar.

A weak Factory Orders report for June (-1.5%; Briefing.com consensus -1.9%) may also be working to restrain gains in the buck. The report also contained a negative revision to May's report (to -1.2% from -1.0%).

The benchmark index trades near the top of today's nine-point trading range as five sectors trade in positive territory. The commodity-sensitive materials sector (+0.6%) leads the pack while heavily-weighted technology (+0.4%) and industrials (+0.1%) sectors follow.  The energy sector (+0.1%) has also been an influential source of support, moving up in response to WTI crude futures trading higher by 2.8% ($41.88/bbl; +$1.15).

On the flipside, the financial sector (-0.4%) is the worst-performing sector today as long-term interest rates have headed lower in the wake of the Bank of England decision. The health care (-0.1%) and consumer discretionary (-0.1%) sectors are also laggards.

The influential technology sector (+0.5%) has lent support to the broader market as investors eye a rebound in the high-beta chipmakers and leadership from heavily-weighted Facebook (FB 124.21, +1.70). The PHLX Semiconductor Index (+0.8%) has trimmed its weekly loss to 0.5% as the space moves higher, helped in part by the gain in Micron (MU 14.11, +0.60).

In the industrial sector (+0.1%), machinery name Parker-Hannifin (PH 119.23, +5.44) outperforms after beating bottom-line estimates for the quarter and raising its earnings estimates for the full year. The Dow Jones Transportation Average (+0.1%) isn't doing much as rail names move lower in sympathy with Canadian Pacific (CP 143.13, -4.15), which has declined by 2.8% after the news that hedge fund Pershing Square is selling its stake in the company.

The heavily-weighted health care sector (-0.1%) wrestles with its flat line as biotechnology pulls back from its recent advance. In the sub-group, Regeneron Pharmaceuticals (REGN 427.71, -13.52) underperforms after reporting mixed second-quarter results. The company missed revenue estimates, but reaffirmed its net product sales guidance. Biogen (BIIB 316.41, -4.93) has also been under pressure as investors continue to discount a potential acquisition of the company, which was a source of buying speculation on Tuesday.

Treasuries have enjoyed a healthy bid after the Bank of England's announcement. The yield on the 10-yr note currently shows a loss of five basis points, slipping to 1.49%.

Today's economic data included Challenger Job Cuts for July, weekly initial claims, and Factory Orders for June:

July Challenger Job Cuts reported in at 45,300, which compares to the prior month's reading of 38,500.

Initial claims increased by 3,000 to 269,000 (Briefing.com consensus 264,000) for the week ending July 30.

There were no special factors influencing the initial claims reading.

The four-week moving average for initial claims jumped to 260,250 from 256,500.

Weekly initial claims remained below 300,000 for the 74th straight week. 

Continuing claims decreased by 6,000 to 2.138 million for the week ending July 23.

The four-week moving average for continuing claims increased by 5,250 to 2.142 million, which is still near its lowest level since November 2000.

Factory orders declined 1.5% in June (Briefing.com consensus -1.9%) on the heels of a downwardly revised 1.2% decline (from -1.0%) in May.

That qualified June as a double-dip month since it was the second consecutive month that factory orders declined.

On a year-over-year basis, factory orders are down 2.6% with durable goods orders unchanged and nondurable goods orders down 5.1%.

Orders for durable goods slumped 3.9% in June after a 2.9% decline in May.

That had a lot to do with a 10.5% decline in orders for transportation equipment, which featured a 58.8% decline in orders for nondefense aircraft and parts.

There was some offsetting strength fortunately in orders for nondurable goods industries, which increased 1.0% in June on the back of a 0.6% increase in May.

Notwithstanding the back-to-back monthly decline in factory orders, shipments increased 0.7% and were up for the fourth straight month.

Total inventories for all manufacturing industries were down 0.1% and have now declined in thirteen of the last fourteen months.

The inventory-to-shipments ratio dipped to 1.35 in June from 1.36 in May.